A short sale property is a home that is being sold for less than the current amount owed to the mortgage company or lender. A home is normally sold in a short sale if the owner is no longer able to pay their loan which can be caused by various reasons. These can include death, health concerns, divorce, job loss, etc. These reasons are always extreme life changing reasons that can vary between lenders. The lender must always approve the short sale. The owner can never choose to sell in a short sale without the lender short sale approval letter. A short sale is also an alternative to foreclosure and carries fewer negative consequences. It’s also better for the seller but they would need to be proactive about the process because it can be time consuming. Getting started as early as possible is the best decision a seller can make if they are considering a short sale.

Short Sale vs. Foreclosure

Short selling has numerous benefits to all the three parties directly involved here:

• The owner avoids a foreclosure which normally has a greater negative effect on their credit report.
• A short sale certainly lessens the possibility of a current debt ensuing on the lender. In other words, a deficiency judgment is avoided.
• In case the lender participates in a short sale program that is supported by the government (HAFA) then they stand to benefit up to $3,000 to enable them to complete that short sale.
• A short sale has a lesser impact on the future housing prospects of the homeowner because the homeowner can easily qualify for another mortgage typically after two years of the short sale in contrary to a foreclosure where one has to wait for seven years in order to qualify for another mortgage.
• In a short sale the forgiven debt may be considered as taxable income by the IRS. The lender has the right to send the seller a 1099-C form. The seller should discuss this matter with a tax accountant for possible implications in your individual case. This has no bearing on the buyer whatsoever.

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